Thursday, August 15, 2013

There is No Such Thing as Capitalism

I know what everyone calls our current economic system, I know how some people identify themselves, and I know how political historians describe the progress of our society and economy. I know how the Cold War was described (Incidentally, there wasn't any communism in the Cold War, either). I know what term people use when they describe their ideal economy. However, I assure you, there is no such thing as capitalism. If we look at the basic definition of capitalism, the characteristics that distinguish it from socialism, democratic socialism, communism, and, the economic system it was defined to oppose, mercantilism, and then at the real world, there is a gap. In fact, there's a big gap. In fact, as nice a theory as capitalism is, it has absolutely no relationship to the actual world, except for the fact that certain sections of the rich and powerful use it as justification for being rich and powerful.

Here's a fundamental definition of capitalism: Through the rational purchasing decisions of self-interested consumers in an unregulated marketplace, the price of goods and services will be fairly established and the best goods and services, when priced to accurately match their market value, will be profitable for the producers or providers, and this profit mechanism will drive producers and providers to innovate and improve their offerings, while managing their organization efficiently in order to secure the most profit. Or, to put this a way that connects to the actual term, allowing “capital” to regulate itself, rather than have it regulated by the state, creates the best economy and society for the most number of people. Lots of stuff derives from that definition (supply & demand being the most basic) but when you look at what defines capitalism from other theories of economics, that's about it. Let the consumer decide and let profit go where it can, and we'll end up with the best stuff at the best price. And it's a total fantasy. Here's why.

Reflect for just a second on the purchases you made this week. Some of them, I'm sure were totally rational. And some of them were, I can't believe what a shitty day at work I had and OHMYGOD the T is delayed again and the person next to me hasn't showered since Watergate and I don't need a $40 hardcover history of London but it'll sure as fuck make me feel a tiny bit better to buy it. Anyone who has ever eaten a pint of ice cream because they felt sad, knows we don't always use logic when making decisions. Humans have emotions and sometimes (perhaps most of the time) we use them in making our decisions. Yet somehow we are supposed to believe that millions of people, sometimes thinking rationally, somethings thinking irrationally, are going to magically become a rational decision making machine in aggregate. If your decision making process is about 50/50 rational/emotion and the guy on T's decision making process is about 50/50, adding the two of you together doesn't make your decisions 100% rational. But there are even more problems with this whole idea of the rational consumer.

It is totally rational to buy something that cures baldness and arthritis and pleurisy and syphilis and...
 The use of logic in consumer decision making only results in good decisions when consumers have all the necessary information. Your process could make Dr. Spock (both of them, I guess) proud, but if your information is bad, your decision is still going to be bad. Hence, snake oil salesmen. When Adam Smith came up with the whole thing, there were some inherent social restraints to lying your face off for money. Odds were pretty good the customer you just lied to was also your haberdasher, or the farmer your bought your vegetables from, or the miller you bought your flour from, or someone you would want to be honest to you about the products you buy. But with larger, mobile societies, that mechanism vanishes. (If it ever existed in the first place.) Without that mechanism, and because lying was profitable, capitalism had no way to stop it and so governments had to regulate the markets by passing laws that outlawed lying about what you were selling. In capitalism, as long as the practice is profitable for someone, it is invincible. And since we're talking about how the profit motive doesn't guarantee quality...

It is more profitable to make cheap crap and convince us to buy it, than it is to make a quality product. 
In theory, a company that produces the highest quality goods, with an efficient production system, and prices those goods at a rate determined by the market, will be extremely profitable, and, some are. However it is just as profitable and a whole lot easier to churn out cheap product and convince people it is quality. McDonald's is profitable not because it makes quality food at a fair price, but because it makes the cheapest food it possibly can and convinces people to buy it through a sophisticated and relentless advertising campaign. And we know advertising works, regardless of how we may think it doesn't influence our decisions, because every major corporation uses it as much as possible. Think about prescription drugs. In theory, capitalism would work so that the most effective drugs are prescribed the most by doctors. Drug companies would need to publicize their drugs to doctors, but if capitalism existed, that's all they'd need to do. Make good drugs and tell doctors about them. In practice, prescription drug companies spend shmillions of dollars advertising directly to potential patients. Prescriptions bring me to my next reason why capitalism doesn't exist.

Not all human stuff work on market principles.
If you're unconscious in an ambulance, you can't say “Excuse me driver, I have rationally determined that Beth Israel Deaconess Hospital provides the highest quality service I am currently in need of, at a fair market price.” If there is no mechanism for consumer choice, the markets cannot regulate themselves. Furthermore, markets are not just regulated by consumers choosing between competitors, but by choosing to not purchase a kind of good or service. The consumer can sometimes be most powerful not she says, “This is the best choice,” but when he says, “None of the choices meet my wants or needs.” But consumers are not free to not choose food, medical care, clothes, and shelter. Furthermore, to participate in other aspects of the economy/society there are products and services you are also not free to not buy. You need transportation to your job or a certain kind of clothing. You need soap, deodorant, shampoo, and toothpaste. You need a degree. The presence of need, means that there will be a level of demand for these goods and services, independent of the quality and price of those goods and services. Kind of like with elections, when you can't not chose, you often end up with an absence of quality.

One more thing about markets.
But even in industries that are affected by the fundamental “no,” markets don't end up reflecting the highest quality good or service at a fair market price. Once a company reaches a certain level of power, it is more profitable to manipulate the market itself, than to continue the whole quality product or service at a fair market price thing. For example, in order to drive up the market price of aluminum, Goldman Sachs has thousands of tons of aluminum driven back and forth between warehouses to ensure they did nothing technically illegal, while creating artificial scarcity. Essentially, they used a loophole in existing law to COMPLETELY DESTROY THE PRINCIPLE OF SUPPLY AND FUCKING DEMAND! In late 19th early 20th century we saw companies manipulate the market by becoming monopolies. Now, we see them manipulate the market by lobbying Congress for beneficial regulation, tax codes, and subsidies, including the erosion of the very laws that were put in place after the whole monopolies disaster the first time around. Whether it is selling at a loss to drive out competition, fighting for beneficial legislation, or using loopholes to avoid certain costs, it is more profitable to manipulate the market than sell quality goods at a fair price, and so, that's what companies do. Speaking of weird things big companies do...

There are a lot of people who got very rich, doing a demonstrably terrible job at what they were hired to do.
This is actually a consequence of some of the other factors but right now, if you get a job on Wall Street, in finance, you can do a terrible fucking job, as they did leading up to the crash in 2008, and still end up rich. This is perhaps even more directly, mind-fuckingly apparent, when CEOs of collapsing companies get shmillion dollar salaries. Shit, they can get their asses fired for being the worst thing that's ever happened to the economy and still get a fat severance package. (Of course, the worker who gets laid off because of the CEOs mistakes, who has to collect unemployment is the one dragging the economy down.) At its base, “capitalism” assumes a meritocracy; those who are best at what they do, will secure the most reward, but whenever there is a Golden Parachute we see there is nothing meritocratic about our system at all.

OK, smarty pants, if capitalism doesn't exist, what are we living in now?
Our system is “restrained profitism.” Short term profits for individuals are the fundamental driving force of our economy. Because “open profitism” of the kind we had in the late 19th-early 20th centuries results in rat poison in our sausages, medicine that doesn't work, factories that kill children, and cataclysmic stock market crashes, we have created “restraints” on the kind of things people can do for profit. The New Deal and the Labor Movement ushered in “controlled profitism” where mechanisms were used to control and direct the profit drive to ensure certain societal needs were addressed and all we got for our controls was UNPARALLED WEATH AND THE FIRST EVER ACTUAL MIDDLE-CLASS THE ENTIRE WORLD HAS EVER SEEN.

The thing is, we've always kind of known capitalism didn't exist. The American economy was essentially built on high tariffs, industrial espionage, and slavery. Not a lot of market forces at work there. And if market forces were all powerful, why have we needed to forcibly overthrow other nations with our army to open their markets to our industry? Then there's the whole Bank of the United States, which took a break for awhile, until it became the Federal Reserve. And all the laws, we've always had to protect us from profits. Adam Smith had an interesting idea, and as a response to mercantilism and in a relatively small economy, his idea wasn't that preposterous. But we've had a few hundred years of data to examine and I think it's quite clear the only place “capitalism” actually exists, is the mind's of rich people convincing themselves living in mansions is totally fine, while others live on the streets.

1 comment:

  1. I was googling the phrase "there is no such thing as capitalism" and found you. Very interesting. Just finished reading this: -- see the last sentence.